Healthy metrics for sales & marketing spend in SaaS

06/13/2017By Sammy Abdullah, CFA

We poured through the latest annual reports of 44 publicly traded SaaS businesses and analyzed the latest trends in sales and marketing spend. While big publicly traded companies aren’t a perfect comparison for Series A and B SaaS businesses, they definitely provide guidance as to what healthy and unhealthy trends and metrics looks like. The data set as well as a few observations are below:

Revenue

Revenue

Revenue

Growth

Growth

S&M

S&M

S&M

S&M/Rev

S&M/Rev

S&M/Rev

2016

2015

2016

2015

2014

2016

2015

2016

2015

2014

2016

2015

2014

Efficiency

Efficiency

Hortonworks, Inc.

HDP

$184,461

$121,944

$46,048

51%

165%

$183,542

$133,052

$70,695

100%

109%

154%

$0.34

$0.57

Wix.com Ltd.

WIX

$290,103

$203,158

$141,841

43%

43%

$97,742

$120,010

$156,512

34%

59%

110%

$0.89

$0.51

Splunk, Inc.

SPLK

$949,955

$668,435

$450,875

42%

48%

$653,524

$505,348

$344,471

69%

76%

76%

$0.43

$0.43

New Relic, Inc.

NEWR

$263,479

$181,309

$110,391

45%

64%

$168,163

$129,677

$89,162

64%

72%

81%

$0.49

$0.55

Box, Inc.

BOX

$398,605

$302,704

$216,440

32%

40%

$253,020

$242,184

$207,749

63%

80%

96%

$0.38

$0.36

Blackline

BL

$123,123

$83,607

$51,677

47%

62%

$77,810

$56,546

$31,837

63%

68%

62%

$0.51

$0.56

Instructure

INST

$110,880

$73,193

$44,352

51%

65%

$69,991

$53,459

$35,390

63%

73%

80%

$0.54

$0.54

MobileIron, Inc.

MOBL

$163,926

$149,298

$132,295

10%

13%

$101,757

$105,520

$99,870

62%

71%

75%

$0.14

$0.16

HubSpot, Inc.

HUBS

$270,967

$181,943

$115,876

49%

57%

$162,647

$112,629

$78,809

60%

62%

68%

$0.55

$0.59

Castlight Health, Inc.

CSLT

$101,700

$75,315

$45,605

35%

65%

$58,800

$67,414

$62,065

58%

90%

136%

$0.45

$0.44

Proofpoint, Inc.

PFPT

$375,496

$265,397

$195,607

41%

36%

$201,204

$148,414

$98,333

54%

56%

50%

$0.55

$0.47

Zendesk, Inc.

ZEN

$311,999

$208,768

$127,049

49%

64%

$166,987

$114,052

$77,875

54%

55%

61%

$0.62

$0.72

Cornerstone OnDemand, Inc.

CSOD

$423,124

$339,651

$263,568

25%

29%

$225,631

$207,026

$162,552

53%

61%

62%

$0.37

$0.37

2U

TWOU

$205,864

$150,194

$110,239

37%

36%

$106,610

$82,911

$65,218

52%

55%

59%

$0.52

$0.48

Coupa Software

COUP

$133,775

$83,678

$50,845

60%

65%

$68,562

$54,713

$33,724

51%

65%

66%

$0.73

$0.60

RingCentral, Inc.

RNG

$379,724

$296,228

$219,887

28%

35%

$192,497

$139,851

$104,827

51%

47%

48%

$0.43

$0.55

ServiceNow, Inc.

NOW

$1,390,513

$1,005,480

$682,563

38%

47%

$700,464

$498,439

$341,119

50%

50%

50%

$0.55

$0.65

LogMeIN, Inc.

LOGM

$336,068

$271,600

$221,956

24%

22%

$162,811

$138,946

$119,508

48%

51%

54%

$0.40

$0.36

Apptio

APTI

$160,569

$129,251

$106,615

24%

21%

$75,856

$71,337

$60,775

47%

55%

57%

$0.41

$0.32

salesforce.com, Inc.

CRM

$8,391,984

$6,667,216

$5,373,586

26%

24%

$3,918,027

$3,239,824

$2,757,096

47%

49%

51%

$0.44

$0.40

Lifelock

LOCK

$587,469

$476,016

$369,658

23%

29%

$273,389

$213,984

$162,363

47%

45%

44%

$0.41

$0.50

IntraLinks Holdings, Inc.

IL

$276,153

$255,821

$234,496

8%

9%

$124,006

$115,867

$108,428

45%

45%

46%

$0.16

$0.18

Xactly

XTLY

$95,461

$75,974

$61,111

26%

24%

$40,187

$34,836

$28,877

42%

46%

47%

$0.48

$0.43

Mindbody, Inc

MB

$139,021

$101,369

$70,010

37%

45%

$56,460

$46,345

$30,922

41%

46%

44%

$0.67

$0.68

LivePerson Inc.

LPSN

$222,779

$239,012

$209,931

-7%

14%

$89,529

$94,728

$83,253

40%

40%

40%

-$0.18

$0.31

WorkDay, Inc.

WDAY

$1,569,407

$1,162,346

$787,860

35%

48%

$583,874

$434,056

$315,840

37%

37%

40%

$0.70

$0.86

Jive Software, Inc.

JIVE

$204,094

$195,793

$178,693

4%

10%

$74,654

$78,684

$90,141

37%

40%

50%

$0.11

$0.22

Bazaarvoice, Inc.

BV

$199,766

$191,181

$168,145

4%

14%

$69,808

$78,373

$86,482

35%

41%

51%

$0.12

$0.29

Shopify

SHOP

$205,233

$105,018

$50,252

95%

109%

$70,374

$45,929

$23,351

34%

44%

46%

$1.42

$1.19

SPS Commerce, Inc.

SPSC

$193,295

$158,518

$127,947

22%

24%

$65,886

$55,374

$46,990

34%

35%

37%

$0.53

$0.55

Marin Software, Inc.

MRIN

$99,878

$108,530

$99,354

-8%

9%

$32,889

$45,132

$47,716

33%

42%

48%

-$0.26

$0.20

Five9, Inc.

FIVN

$162,090

$128,868

$103,102

26%

25%

$52,748

$42,042

$37,445

33%

33%

36%

$0.63

$0.61

BroadSoft, Inc.

BSFT

$340,962

$278,843

$216,857

22%

29%

$107,142

$83,806

$69,471

31%

30%

32%

$0.58

$0.74

Qualys, Inc.

QLYS

$197,925

$164,284

$133,579

20%

23%

$57,970

$49,569

$48,049

29%

30%

36%

$0.58

$0.62

Secureworks

SCWX

$429,502

$339,522

$262,130

27%

30%

$124,950

$111,978

$85,046

29%

33%

32%

$0.72

$0.69

The Ultimate Software Group, Inc.

ULTI

$781,291

$618,081

$505,936

26%

22%

$224,416

$169,664

$117,033

29%

27%

23%

$0.73

$0.66

Appfolio, Inc.

APPF

$105,586

$74,977

$47,671

41%

57%

$28,827

$26,076

$16,876

27%

35%

35%

$1.06

$1.05

RealPage, Inc.

RP

$568,128

$468,520

$404,551

21%

16%

$135,213

$123,108

$111,563

24%

26%

28%

$0.74

$0.52

Benefitfocus, Inc.

BNFT

$233,335

$185,143

$137,420

26%

35%

$55,488

$58,589

$48,467

24%

32%

35%

$0.87

$0.81

Athenahealth, Inc.

ATHN

$1,082,900

$924,700

$752,600

17%

23%

$256,600

$237,300

$196,800

24%

26%

26%

$0.62

$0.73

Medidata Solutions, Inc.

MDSO

$463,381

$392,506

$335,071

18%

17%

$109,290

$103,153

$83,435

24%

26%

25%

$0.65

$0.56

Twilio

TWLO

$277,335

$166,919

$88,846

66%

88%

$65,267

$49,308

$33,322

24%

30%

38%

$1.69

$1.58

Veeva Systems Inc.

VEEV

$544,043

$409,221

$313,222

33%

31%

$116,803

$80,984

$56,203

21%

20%

18%

$1.15

$1.19

Atlassian Corporation

TEAM

$457,058

$319,521

$215,109

43%

49%

$93,391

$67,989

$34,968

20%

21%

16%

$1.47

$1.54

Average

$554,600

$431,797

$331,383

31%

40%

$239,882

$197,005

$158,196

43%

48%

54%

$0.58

$0.60

Median

$273,560

$199,476

$154,993

27%

33%

$106,876

$98,941

$81,031

41%

46%

48%

$0.54

$0.55

-In 2016, the median SaaS business had total revenue of $274mm, grew revenue by 27% from the prior year, and spent 41% of total revenue on sales & marketing.

-Higher spend doesn’t mean faster growth. For instance, the 10 largest spenders - as measured by sales and marketing spend as a percent of revenue – spent 64% of revenue on sales and marketing, but had average growth of 41%. Meanwhile, the 10 lowest spenders spent 25% of revenue on sales and marketing but had average growth of 32%. In other words, the 10 highest spenders spent 2.5x more of their revenue on sales and marketing, but only had 1.3x better growth: 41% versus 32%.

-Only 1 of the 44 companies spends 100% of its revenue on sales and marketing (Hortonworks). Obviously this isn’t sustainable unless you have extremely deep pockets. We call this out only because we’ve seen Series A/B businesses do this. Don’t be them.

-We did a calculation of spending efficiency. We measure “efficiency” as dollar growth in revenue from 2015 to 2016 divided by marketing spend in 2016. In other words efficiency is how much new revenue does $1 in sales and marketing spend generate. The median was $0.54 of new revenue per $1 of sales and marketing spend in 2016 and $0.55 in 2015. Those are actually fantastic numbers, given that the typical SaaS company retains 99% of its revenue from the prior year. That said, $0.34 seems to be the lowest you should let this figure fall: if we pull out the 6 least efficient companies from the data set, the minimum remaining is $0.34 (the 6 we pulled are far lower ranging from -$0.26 to $0.16).

-As expected, the biggest spenders are the least efficient. The top 10 spenders - as measured by sales and marketing spend as a percent of revenue – spent 64% of revenue on sales and marketing but generated only $0.49 of new revenue per $1 of sales and marketing spend. Meanwhile, the 10 lowest spenders spent 25% of revenue on sales and marketing yet generated $0.97 of new revenue per $1 of sales and marketing spend. That’s nearly double the efficiency for less than half the marketing spend.

So what are the key take-aways from all this data? In general, sales and marketing spend will be about 41% of revenue for a larger, slowing growing business (27% YOY growth) and generate about $0.54 of new revenue per $1 of marketing spend. So long as you have strong net dollar retention (we find the median is 99%), numbers like that will allow you to grow into a large public company like the 44 businesses in this data set. If those metrics were good enough for them to become large public companies, they’ll be good enough for you. Also don’t be shy about spending on sales and marketing, although keep an eye on efficiency: if you’re at or near $0.54 of new revenue per dollar of sales and marketing spend, you’re in good company, but don’t let it fall below $0.34.